TNAG-2245-FCO40-3228-Bank-of-Credit-and-Commerce-Hong-Kong-Limited-(BCCHK)-1991 — Page 244

CONFIDENTIAL

HK53102/3

6

110513

MDHIAN 6196

CONFIDENTIAL

FM HONG KONG

TO DESKBY 200800Z FCO TELNO 2315

OF 2OO54OZ JULY 91

Mit 1003

TOP COPY Q DIST?

1991

126/7

RESIDENT CLERK PLEAS PASS TO PS/LORD CAITHNESS.

MIPT: BANK OF CREDIT AND COMMERCE HONG KONG LTD. (BCCHK) AND BCCI FINANCE INTERNATIONAL LTD (BCCIFI): LATEST DEVELOPMENTS.

1. AFTER THE EXPIRY OF THE 7-DAY NOTICE PERIOD REQUIRED UNDER SECTION 52(2) OF THE BANKING ORDINANCE (THE ORDINANCE), THE COMMISSIONER OF BANKING (C OF B) REPORTED THE CIRCUMSTANCES

LEADING TO THE SUSPENSION OF THE BUSINESS OF BCCHK AND BCCIFI (THE INSTITUTIONS) TO THE GOVERNOR IN COUNCIL ON 17 JULY.

2. IT WAS CLEAR THAT NO POTENTIAL BUYER WAS WILLING TO TAKE ON

THE RISK OF ACQUIRING THE INSTITUTIONS WITHOUT AN INDEMNITY FROM A TRUSTWORTHY PARTY AGAINST ANY HIDDEN LIABILITIES. THE SHAREHOLDERS WERE NOT PREPARED TO PROVIDE THIS, AND THERE WAS CONSIDERED TO BE NO CASE FOR USING PUBLIC FUNDS TO PROVIDE AN INDEMNITY WITH UNLIMITED LIABILITY TO FACILITATE THE SALE OF THE INSTITUTIONS. IT WOULD HAVE BEEN VERY UNWISE TO PERMIT THEM TO RECOMMENCE TRADING, SINCE THERE WAS A CONSIDERABLE RISK OF A DISORDERLY WITHDRAWAL OF FUNDS. ALTHOUGH, ON INFORMATION AVAILABLE TO C OF B, THE INSTITUTIONS WERE SOLVENT, THEY COULD QUICKLY LOSE THEIR LIQUIDITY AND BECOME UNABLE TO PAY THEIR DEBTS. ON THE OTHER HAND, ANY DELAY IN ACTION WOULD SERIOUSLY DAMAGE THE INSTITUTION'S BUSINESS FABRIC AND UNDERMINE THEIR VALUE, EITHER AS GOING CONCERNS OR ON LIQUIDATION.

3. IN THE CIRCUMSTANCES, THE GOVERNOR IN COUNCIL DIRECTED THE FINANCIAL SECRETARY TO PRESENT A PETITION TO THE HIGH COURT FOR THE WINDING UP OF THE INSTITUTIONS. ON THE SAME DAY, THE HIGH COURT, HAVING CONSIDERED FS' PETITION, APPOINTED THE OFFICIAL RECEIVER TO BE PROVISIONAL LIQUIDATOR AND TWO ACCOUNTANTS OF PEAT MARWICK TO BE SPECIAL MANAGERS OF THE INSTITUTIONS.

4. THE APPOINTMENT OF A PROVISIONAL LIQUIDATOR DOES NOT PRE-EMPT A SALE OF THE INSTITUTIONS AS GOING CONCERNS. THE PROVISIONAL LIQUIDATOR HAS THE AUTHORITY TO SELL THE INSTITUTIONS WITHOUT THE CONSENT OF THE HOLDING COMPANY OF THE INSTITUTIONS. HOWEVER,

1

PAGE CONFIDENTIAL

IN